Generation Z's taste for digital payments makes open banking vital
Generation Z, whose older members are already entering the workforce, is using digital technology more than any other age group — including millennials. Gen Z’s preferred digital technologies include P2P and B2C digital payments, as opposed to more traditional payment methods. And further, one-third of the Gen Z consumers polled in the survey have never even used a paper check. This group sends and receives money digitally, uses digital apps to manage their budgets and financial accounts, and rarely steps foot inside a brick-and-mortar branch.
If financial institutions want the business of this digital-only group, they need to offer more robust tech-enabled services than what’s currently in many of their arsenals. Doing so is beneficial in several ways. For one, acquiring customers at an early age can lead to a lifetime of loyalty if these younger customers are served properly. Gen Z consumers may one day need a home or car loan and more sophisticated financial advice as they begin to amass savings. Meeting Gen Z’s needs now means they will naturally think of their bank as their financial needs evolve and mature. Further, customers who frequently use digital services are also generally the more profitable and loyal ones.
Global trends are already proving that having a robust digital offering is critical for financial institutions. China, for example, has virtually done away with cash in favor of digital payments. Digital-only, startup “challenger banks” have been successful at taking customers away from traditional institutions in Europe and the U.K. And, in most of Asia, mobile banking has overtaken online banking in popularity.
Of course, some of these changes have been slower to catch on in the U.S., but it’s only a matter of time before they become widespread here, too. Several of the successful digital upstarts in other parts of the world have already set their sights on conquering the U.S. market. This means banks may not have a choice for much longer when it comes to going digital. Millennials and older generations adopted digital financial services because of the convenience and ease of use, but for Gen Z, digital is all they know.
The burning question is: how can banks achieve the level of digital capability needed to satisfy customers today and beyond? Banks are not technology companies; their core lies in things such as determining risk, managing balance sheets and writing loans, not providing digital services and solutions. And most banks outside of the very few largest global institutions have the technology budget needed to develop, create and successfully roll out these digital products.
To counter this, banks have been or are beginning to engage in partnerships with fintechs. In fact, bank/fintech partnerships are becoming more common and are expected only to grow. That’s because banks are realizing they can leverage innovative products and services that have already been developed by companies that are experts in technology, at a fraction of the time and cost than if they were to develop innovations themselves. And thanks to API technology, integrations with third-party fintech products can be done seamlessly and without a large tech overhaul. Fintechs, meanwhile, also see the benefit of being able to get technology out in front of an already built-in customer base, as opposed to the extensive effort required to acquire the customers on their own.
As we’ve seen, it’s not only banking but the entire world that is going digital. As Gen Z and the generations that succeed them begin to use financial services, digital capabilities become a must-have rather than a nice-to-have. By planning now, irrelevance in the near future can be avoided.